China accuses US of making wrong call on Huawei
May 21, 2019
The start of the week brought broad weakness to the greenback, with losses especially pronounced against AUD, which surfed the waves of a surprise victory of conservative incumbent Prime Minister Scott Morrison. This morning it became clear President Trump has signed a waiver to postpone the sanctions against Chinese technology company Huawei for three months. The market reaction of this potential first step towards atonement is muted, however, as the measures are still to be implemented later. This is why Huawei’s founder, Ren Zhengfei, was quick to comment and say this doesn’t materially change the situation for Huawei. Meanwhile, China’s ambassador to the European Union, Zhang Ming, has classified the US measures against Huawei as “wrong behaviour”, “politically motivated” and warns “there will be a necessary response”. This all reeks strongly of increasing chances of a further escalation of trade tensions, with the possibility of China creating more non-tariff barriers to US companies doing business in China being a very plausible scenario. Existing Home Sales are due at 15:00 BST, followed by Federal Open Market Commission members Evans and Rosengren speaking at 15:45 and 17:00 respectively.
Sterling was broadly flat yesterday but has fallen to fresh lows this morning as the prospects of Theresa May’s withdrawal agreement worsened further after Emily Thornberry said that Labour would be voting against the bill in June. The divisions within the Conservative Party widened after the emerging One Nation caucus of Tories yesterday began to campaign against a no-deal Brexit and threatened to block leadership candidates who were willing to execute one. Boris Johnson supporters responded by arguing in The Sun that their candidate would take legal action if he was not selected by Tory MPs as one of the two leadership candidates for a vote by the general membership. Political headlines relevant for sterling have the potential to emerge at any time, given how dynamic the situation remains, with markets attempting to judge the changing chances of a disruptive Brexit in October. This morning at 09:30 BST senior Bank of England officials will testify to Parliament Treasury Committee.
The single currency traded mostly sideways yesterday, despite a minor beat on Eurozone’s Current Account data and on German Producer Prices. Despite the beat to forecasts, a lower trade surplus and declining primary income surplus caused the headline Current Account surplus to fall from €27.9 billion in February to €24.7 in March. Other details do not exactly cater to a build up in trust in the Eurozone, as foreign investors are currently net sellers of Eurozone portfolio assets in the 12 months leading up to March to the amount of €101 billion. Today Eurozone Consumer Confidence at 15:00 BST will be the most important data release.
The loonie strengthened yesterday, finding itself the best performing G10 currency amid slow news flow. The resolution of the ongoing steel tariff dispute between the US and Canada is one potential driver, as was yesterday’s continued strength in crude oil prices. Today’s data calendar for CAD remains empty.